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Indonesia's October cabinet reshuffle to bring in new economic team to steer reforms, growth

Jakarta

INDONESIAN President Joko Widodo will announce a major overhaul of his cabinet aimed at firing up South-east Asia's biggest economy, but will now delay the reshuffle until October.

Under the current plan, which could change by the time it is unveiled, several key ministers are set to be dropped, including State-Owned Enterprise Minister Rini Soemarno, according to a person familiar with the matter, who asked not to be identified as discussions were private. Fisheries Minister Susi Pudjiastuti and Energy Minister Ignasius Jonan are also set to miss out on a cabinet post, while Mr Joko is also seeking to cut back the dominance of state-owned enterprises in major projects, the person said.

The reshuffle will be one time only and will be announced in October, the person said, noting the changes are aimed at boosting coordination in a bid to push through reforms and help Indonesia's economic growth expand beyond 5 per cent. Still, much could happen in the coming months as the behind-the-scenes horse trading over cabinet posts continues - in particular, whether to include parties in political rival Prabowo Subianto's coalition.

While Finance Minister Sri Mulyani Indrawati will stay on in her current role, Coordinating Minister for Economic Affairs Darmin Nasution is set to be replaced, the person said, while former central bank governor Agus Martowardojo, former finance minister Chatib Basri and CT Corp chairman Chairul Tanjung are being touted as possible replacements for Mr Nasution.

"The president has not decided on the names of ministers. There is no ministerial list yet. That is the president's prerogative," Mr Joko's chief of staff, Moeldoko, who like many Indonesians uses only one name, said by telephone.

The delay in announcing the reshuffle, which had previously been expected to happen as early as June, comes amid simmering tensions between coalition partners over how to carve up cabinet positions. Meanwhile, spillover from trade tensions as well as waning global demand are damaging Indonesia's economy, with the government having already pared back its projection for economic growth.

Mr Joko, who will be sworn in for another five years as president in October, has already flagged plans to double down on an infrastructure drive that was a hallmark of his first term. He is also set to reform the state-owned enterprise sector, overhaul labour laws and make changes to tax levels in a bid to boost exports and investment, the person said.

With the government cutting back its projection for growth for this year to 5.2 per cent from an initial forecast of 5.3 per cent, Mr Joko is already facing economic headwinds that threaten to overshadow his second term.

"Jokowi has promised to intensify much-needed structural reforms in his second term and investors would welcome a shake-up of ministers if he brings in people who are willing and able to make tough decisions," said Ben Bland, director of the South-east Asia Project at the Lowy Institute in Australia.

"Burdensome labour regulations and preferential treatment for state-owned enterprises are two of the main bugbears for foreign companies and domestic private-sector investors," he said, noting reforms in both areas would be well-received.

Mr Joko is looking to springboard off an election win that saw him defeat Mr Prabowo for a second time in a row, and almost double his winning margin in the 2014 presidential race. But while Mr Prabowo disputed the result, prompting months of unrest that saw the deadliest political violence in the Indonesian capital in two decades, his Gerindra party has flagged a willingness to join the ruling coalition, although with conditions.

The Apr 17 election saw Mr Joko win 55.5 per cent of the total vote, and members of his campaign team said that gives the president greater authority to decide the make-up of his cabinet.

Hendri Satrio, a political analyst at Paramadina University in Jakarta, said members of Mr Joko's coalition will not accept cabinet positions being given to parties from the Prabowo coalition. Still, he said changes were long overdue.

While there had been achievements, there had also been "a number of policy misses by economic ministers", he said, adding that Ms Soemarno's position was "vulnerable". BLOOMBERG